Thursday, September 27, 2012

Personal Finance: 5 steps to a positive cash flow

From the link:

In business, positive cash flow — when what's coming in is higher than what's going out - is considered an essential indicator of a company's well-being. Having enough cash around means having enough money to pay the bills and keep things running smoothly. The same is true in any household. Cash flow, then, is solid financial ground. Sure, you can use credit cards and lines of credit to keep things running, but that's like stepping into financial quicksand. Keep spending this way and before long, you'll have disappeared beneath its slimy surface. It's also why when a company gets into a situation where it can no longer pay for things with cash (i.e. savings, revenue and income), it's considered to be a less-than-attractive business opportunity. So how can you achieve a positive cash flow? Well, it's rather simple. Unfortunately, that doesn't mean it's easy.

The 5 steps to positive cash flow
Keeping spending and debt under control can be daunting, but if financial security is your goal, managing cash flow is really the only way to get there. Achieving and benefiting from positive cash flow is, at least in theory, very simple. Here's how to do it...
1)     Calculate your monthly take-home pay and any other income you receive.
2)     Pull out your bank and credit card statements and add up your expenses.
3)     Make adjustments so that income exceeds expenses.
4)     Use the difference to save for the future and pay down any debt.
5)     Repeat indefinitely.

Simple, but not easy
Okay - so we're clearly simplifying things here. For many people, accomplishing this will be very difficult and take years to get right (if ever at all). We'll start by saying that not making enough money to meet basic expenses is a very real problem for some individuals. If that's the case for you, the first step to turning things around will involve finding higher paying work — or getting the skills you need to land a better job. But before you decide that your income's the problem, remember that many people who struggle with their finances make plenty of money to survive. They just spend all of it — and often so much more.

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